VCs do not Look Long Term

There are those out there who believe that all real entrepreneurial activity comes to us thanks to venture capitalists and their funds. But a story from Red Herring illustrates how limited their interests, and therefore their impact, are due to the investment criteria they use to evaluate deals.

Despite the promise of cleantech like biofuels and water purification technologies, some venture capitalists say it can be tricky to invest in the field because it doesn’t necessarily offer the fat and easy returns that make them drool.
The challenges aren’t obvious from the numbers. Cleantech investments in North America grew 35 percent to $1.63 billion in 2005, according to the Cleantech Venture Network, the industry monitor that held the Cleantech Venture Forum conference in San Francisco last week.
But some of the most promising clean technologies just don’t fit the classic VC model of a six-year exit with returns of 10 times the original investment, industry watchers said.

So while VCs do play an important role in our entrepreneurial economy, keep in mind that they only fund a fraction of a percent of new businesses formed each year, they are rather selective on the types of businesses they like, and as this story shows they can have a very near-sighted view of the world.

Small Business Week

We will be recognizing the contributions of small business in our economy and society during Small Business Week, which will be April 9-15, 2006.
Here are some quick facts about small business in America from the Census Bureau:
Small Businesses With Employees
– There were 5.3 million business establishments with fewer than 10 employees in 2003. Among these businesses, 3.9 million employed fewer than 5 people.
– There smallest of our small businesses employed 15.9 million in 2003.
– In 2003 there were 796,000 businesses in the retail trade industry that employed fewer than 10 people. Another 652,000 were in professional, scientific and technical services, with 595,000 in construction and 500,000 in health care and social services.
Nonemployer Businesses
– They generated $830 billion in receipts for 2003, up from $586 billion in 1997. These nonemployers, often “mom and pop” corner stores or home-based businesses, comprised more than 70 percent of all businesses.
– There were 18.6 million nonemployer businesses in 2003.
– There were 1 million nonemployer businesses added to the nation’s total between 2002 and 2003.

Franchise or Grow it Yourself?

I wrote a post a few weeks ago about the pros and cons of choosing to buy a franchise as a way to start a business. A new study from Cornell Hotel and Restaurant Administration Quarterly linked by Docuticker looks at franchising from the other side of the relationship: the franchisor. It found that two types of restaurant chains benefited from using a franchising model to grow.

The use of franchising by the manager-scarce and money-scarce franchisors supports the concept that youthful companies take up franchising to gain access to resources in an economical fashion.

Using a franchise model helps push the cost of development onto the franchisees allowing more rapid growth.
Businesses that had more experience and more resources tended to favor, and performed better, by growing their businesses through company owned stores. Given the headaches that can come with franchisee relations, it is probably wise to only use a franchise model when resource scarcity offers no other alternative.

Maybe You Don’t Need Money for Your Business

Many entrepreneurs seem to believe that the primary objective of their business is to raise investment capital. This is the wrong mentality to have in any start-up, as your focus should be on building a sustainable business. I tell my students in our Entrepreneurial Financial Management class that my primary goal is to teach them how to start a business that needs as little outside money as possible through careful cash flow management, realistic forecasting, and bootstrapping.
Seth Godin (author of Bootstrappers Bible) strongly agrees in this post at Impact Lab from last Friday.

If you fund your company, even a little, you’ve just sold it. Maybe not today, or tomorrow, but one day. That’s http://laparkan.com/buy-sildenafil/ because rational investors are funding your company in the expectation that you are going to sell it and make them a profit. (sure there are exceptions, but not many). So, if you don’t expect that your company will be easy to sell for a big profit, or you don’t ever want to sell your company, it’s not a smart idea to raise money for it….[I]f you absolutely need a lot of money to do a particular business and the terms you’ll need to accept to get that money are unacceptable, find a new business. Nothing wrong with that. The market might be trying to tell you something.

Internet as a Tool for Due Diligence

Entering into business relationships can be tricky. The Internet proves to be a great tool to gain information that can help inform possible business deals. Public Records Blog offers some advice:

By conducting simple due diligence and developing your own profile on any person or business you will have a much better understanding of a particular business and its associates which is vital to your business decisions. 90% of the information you need to know can be found on-line. You just have to know where to look for it, and how to look for it.

The post offers several specific tips on tools to use to search for information.

Carnival of Entrepreneurship!

county-fair-carousel.jpg
Welcome to the Carnival of Entrepreneurship! Those of you who are regular visitors to my site are familiar with Carnival of the Capitalists. This is a similar project, but this travelling collection focuses just on Entrepreneurship. Each week we pick seven (7) posts, often from sites that you may not have visited before. If you are interested in submitting posts and/or hosting this Carnival in the future, please visit About Entrepreneurs for more information. Thanks to all of you for the great submissions! As always it was hard to pick only seven.
Marketing and Business Relationships
Chris at Adventures in Capitalism lasted longer than I did watching American Inventor. He was reminded in the first episode about the importance of creating real value when introducing a new product or a new service. The “cool” factor is not enough to sustain a new venture over the long-term. You need to think like your customers and truly provide something they need. If it does not create real value to its intended customers, a new business will not have the legs to last.
One was to prove that you offer your customers real value is by letting current customers tell them. Testimonials can be a powerful marketing tool for small businesses trying to demonstrate to the market that they are legitimate and effective player in the market. Small Biz Survival offers an excellent summary of why and how to use testimonials. Even a fairly new business can build testimonials if it provides what the customers really want. Don’t be afraid to ask!
One critical skill that many people overlook when preparing to launch a new business is selling. As much as you’d like to think it will, very few products or services will “sell themselves.” The entrepreneur has to learn to sell not only to new customers, but to prospective investors, lenders, employees, landlords, suppliers, and so forth. David offers his thoughts on how to be more effective at selling at Career Intensity. His main point is to be yourself!
I was reminded of one of my favorite chapter titles from You Have to Be a Little Crazy by Barry Moltz is “Networking is not a Verb” when I read this post from Brain Food Blog. It is an interview by David Teten with Pamela Walker Laird about the power of strategic relationship building (a.k.a. networking with a purpose in mind).
It is amazing to me how little civility there is today in business. Common courtesy is not so common any more. Jason reflects on all of this at A Thought Over Coffee. What people fail to recognize is how inconsiderate behavior toward potential customers ruins so many chances to build their business. Returning phone calls, being honest, building a real relationship are all critically important marketing tools. The good news it that those who are considerate and polite will stand out from the crowd.
Financial Management
The whole idea of budgeting can be overwhelming for a new business. Creating and monitoring a budget can take time and energy away from what you need to do to bring business in the door. Many entrepreneurs fail to keep up with a traditional line item budget from month to month. After all, many of us are our own bookkeepers when we first get started. Firevalt offers a simple approach to get you started on budgeting that gets you to focus on what is really important when your business is getting started: getting to positive cash flow each month.
So why do we need to keep track of our numbers? Michael at Marketing and Entrepreneurship offers a lesson he learned from working out and getting in shape. As he learned in the gym, what gets measured gets improved. Powerful words for any growing business!

Immigrants Can Fuel Entrepreneurship

Immigration is fast becoming a major political issue in the US. And while illegal immigration is a valid concern, we need to be cautious not to restrict legal immigration during the current entrepreneurial economic boom. The latest evidence of the positive economic impact of controlled immigration can be seen in the large number of Hispanic entrepreneurs starting businesses across the country.
hispanic business.jpg
From the Tennessean:

Hispanics owned nearly 1.6 million businesses in 2002, a 31% increase from five years earlier, according to a report yesterday by the Census Bureau. The number of all U.S. companies grew by 10%, to about 23 million, during the same period.

It is inspiring to see so many new people coming into this country and embracing our system of free enterprise. They come here to add to our national wealth. But, illegal immigration at the level we now are experiencing can only hurt these entrepreneurs. It fuels animosity from the general population and can even unfairly casts doubts over the legitimacy of these small business owners. Getting control over immigration will be a benefit for Hispanics who are trying to legitimately become a part of the American economy.
I believe that now is not the time to restrict the flow of new people into this country. Quite the contrary. We are in the early stages of a new economic era we have not seen the likes of in this country in over 100 years. The last great entrepreneurial economic boom was created in large part by first generation Americans and sustained by a large, but controlled, wave of immigration that helped to build an economy that last through most of the 1900s.
However, if we want immigration to be a positive contributor to this new era it must be managed properly. We have lost control of our borders and this threatens both our economic health and our national security.